Social media gives us insight into other people’s lives, keeps us updated on celebrity gossip and quenches our need for round-the-clock news updates. However, financial advice is one thing social media should never be trusted to provide.
Read on to learn several reasons why social media and financial advice don’t mix.
Key Takeaways
- Social media plays a key role in today’s society, but it shouldn’t be relied on for financial advice.
- Social media “finfluencers” aren’t subject to the same training, oversight and accountability as fiduciary financial advisors.
- Those who take advice from social media are often targets for fraud.
#1 – Anyone Can Claim to Be an Expert
There are no qualifying exams, licenses, certifications or classroom requirements to become a “finflunecer,” a term used to describe social media financial influencers. In fact, anyone can claim to be a financial expert, even those who have never invested themselves. And, unlike registered financial professionals, finfluencers aren’t subject to regulatory oversight or ethical guidelines. That means you have no recourse if you receive incorrect, inappropriate or fraudulent financial advice.
#2 – Most Advice Is Self-Serving for the Finfluencer
Many social media financial “experts” receive kickbacks, commissions, affiliate marketing payments or sponsorships for promoting certain financial products and services, and there’s no requirement to disclose these payments to followers. A conflict of interest is created when the finfluencer is prioritizing his or her own financial gain over providing advice that’s right for you.
#3 – Social Media Advice Is Generic and May Not Apply to Your Specific Situation
Your financial situation, needs and goals are unique, as are the specific financial risks you face. A social media finfluencer doesn’t have insight into your situation, goals or risk tolerance, which means the advice you receive may not be appropriate based on your specific needs. A better solution would be to consult with an experienced wealth manager who takes a comprehensive approach to helping ensure all aspects of your financial life are working together in pursuit of your goals.
#4 – Social Media Financial Advice Puts You at Risk of Financial Scams
There are multiple ways social media advice can put you at risk of financial scams. Some finfluencers have so little financial knowledge that they don’t realize they’re promoting fraudulent products or services. Others promote high-risk investments, such as speculative stocks or crypto currency, that may not be suitable for most investors. Still others deliberately mislead followers using pressure tactics and persuasion techniques to manipulate them into making risky investment decisions.
The Value of Working With a Fiduciary Financial Advisor
Instead of taking financial advice from social media, a better choice is to work with an experienced fiduciary financial advisor. A fiduciary advisor is held to a fiduciary standard of care, which means they are legally obligated to act in clients’ best interests at all times. As part of that fiduciary responsibility, these advisors have both a duty of care and a duty of loyalty, as described below:
Duty of care
This duty includes not only providing advice that’s in each client’s best interest but also executing that advice in the best way possible for each client. The duty of care standard also requires that the fiduciary advisor provide ongoing advice and guidance throughout the life of his/her relationship with the client.
Duty of loyalty
This duty requires that the advisor put clients’ interests ahead of their own. It also obligates the advisor to provide clients with full and fair disclosure of all material facts relating to the advisory relationship. Furthermore, the advisor must seek to eradicate, or make the client aware of, all conflicts of interest.
In addition, fiduciary financial advisors are typically paid a percentage fee based on the assets they manage for a client. This fee structure is important because it aligns the advisor’s interests with the client’s interests, which grows the advisor’s fee in proportion with the client’s assets.
